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Coming to Terms

Funding of high-cost drugs by health payers has – and will always be – a contentious issue. The process is extremely complex, and is based around the costeffectiveness of a medicine in the longer term, rather than merely the acquisition cost. From a negotiation perspective, conflict exists between the emotional principles of allowing patients access to potentially life-saving medicine, and the rational, logical argument by payers that there is only a certain amount of money in the pot. Throwing more cash at the problem is not the solution, however – that is why payers will focus upon getting the most out of their money.

The ‘Trust’ Word

It is probably true to say that building trust is one of the pharmaceutical industry’s biggest challenges when dealing with its customers. The revenues made by pharma companies do not sit comfortably with them, despite the industry’s justifications that only three in 10 drugs launched make any profit. Healthcare professionals must treat as many patients as possible within tight budget constraints, while the industry needs to deliver shareholder value and return on investment for the millions spent on R&D every year.

There is clearly a commercial conflict of interest – but despite this, both parties still conduct business through structured negotiation processes and regulatory guidelines. Most value is gained through collaborative negotiations, where there is a relatively high level of trust between both parties. However, with low levels of trust, negotiations become adversarial and competitive, resulting in costs being the focus of attention. It can, therefore, be challenging to work in partnership for the common good of patients. The following outlines prevalent negotiation principles with payers, and what to look out for in the process.

Beware of Rose-Tinted Spectacles

The licensing and launch of any new drug inevitably brings with it an element of excitement and hope within the business. This product will solve all the customers’ problems, and you cannot wait to make them aware of it. However, payers are probably not as enthusiastic about the new drug as you are, and it is certainly not at the front of their minds. They have their own agenda – just as you do – and this agenda will affect their approach to any negotiation. Of course, there are exceptions to the rule. Many years ago, I belonged to the market access team launching a new treatment for erectile dysfunction into the UK market. I remember the unusual situation of payers phoning me for appointments, because they were so anxious about the budgetary implications of the launch. It was clearly top priority for both parties.

Do Not Negotiate Too Soon

This issue is not unique to pharma. Before you earn the right to negotiate, it is critical to ensure that the sales process has been thoroughly delivered. If the customer will not buy into the product, even the best negotiator in the world is going to struggle to secure the deal. It is, therefore, completely inappropriate to start negotiating terms – such as first line positioning, price and contract length – before the customer has confirmed that the drug is a viable treatment option. Selling is about identifying and satisfying a customer’s need; when we negotiate, the need has already been identified. It is now down to agreeing terms.

Justifying Price
Inexperienced negotiators often fall into the trap of justifying the reasons why the customer should buy, after the price has been put on the table. They do this because they believe they are strengthening their case. However, experienced negotiators consider justification to be a weakness. It is an easy trap to fall into for a couple of reasons. Firstly, if the seller feels they have not convinced the buyer enough of the benefits of the product, they will continue to sell. Secondly, experienced negotiators are trained to reject proposals, irrespective. The objection triggers a response from the seller, who continues to talk – rather than utilising self-control to remain silent.

The most effective way of reducing the risk of justifying is to ensure a clear positioning statement at the onset, before the price is mentioned. This is a simple, concise sentence which is designed to put your expectations at the front of your counterpart’s mind. For instance: “This unique, cost-effective new treatment, with its quality safety and efficacy evidence, will soon establish itself as the gold standard in the therapeutic area.” This statement clearly emphasises how this product stands out from the crowd, and the buyer should be left in no doubt that this is not a ‘me too’ product.

Understanding the Balance of Power
Clients tell me that they often enter into a negotiation with the impression that the other party holds all the power. They may feel on the back foot and under pressure to secure the deal, and their behaviour will, consequently, reflect this. For example, if there are a number of competitors in the market that are similar to your offering, you will naturally feel in a weaker position. Power is more often perceived than real, so it is important to understand the factors that affect your ability to negotiate. These will include time pressure, circumstances in the business or market place, and the number of options available to the other party and to you. The latter is particularly crucial; having options gives you more control to negotiate – in other words, if your customer is dependent on your product, then you are likely to have most of the power, whereas you have very little power in a market of copycat products. Consider, therefore, how you think through the factors that affect the balance of power before each negotiation.

Playing by Someone Else’s Rules

Other people’s rules restrict our ability to negotiate, so in a market as heavily regulated as pharma, there is likely to be a lot of red tape. You have a choice to follow the rules and toe the line, or set the terms of engagement yourself. An example of playing to someone else’s rules includes engaging in tenders, where the buyer plays suppliers off against each other in order to obtain better terms. Consider the impact of putting your proposal on the table first, rather than responding to the other party’s – it puts you in control and tends to put the other party on the back foot.

Know Who You Are Negotiating With
Pharma clients tell me that they often negotiate with committees or board members within organisations. I tell them that is not the case – they negotiate, simply, with people. What is more concerning is that they sometimes do not personally know their counterparts, let alone have a business relationship with them. It is crucial, therefore, to recognise individuals’ interests and their motivations for making decisions, and to make an effort to identify each person in the decision-making process and what is important to them. Of course, access to these people is sometimes restricted, but it is vital to understand the key players.

Understanding the Variables

Inexperienced negotiators restrict the number of variables they have at their disposal. What I mean by this is that many individuals will bargain with what they are familiar with, rather than exploring all the possible factors relevant to each party. For example, the seller may be familiar with variables such as price, first line positioning and volume discounting. The payer, on the other hand, prioritises factors such as quality-adjusted lifeyear thresholds, average expected use or drug indication positioning. Funding based on outcomes has become a new negotiable variable in many healthcare systems, where the payer is only liable for reimbursing cases when treatment is successful. This seems logical and appears to be a true win/win situation for both parties, but of course it is a lot more complex to implement in practice. Nevertheless, it is those negotiators who think creatively and explore all possible variables that will become most successful.

Preparation is Everything

This is by no means an exhaustive list of principles when negotiating such complex agreements with payers. However, putting careful thought and consideration to each issue before any dialogue with the other party will help make you a better negotiator and, ultimately, prepare you for success.

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James Thomas is a consultant, coach and public speaker on the subject of commercial negotiation. He works across multiple business sectors, including pharmaceuticals, healthcare, fast-moving consumer goods, retail, oil and gas and IT, delivering negotiation workshops and consultancy across Europe. Prior to his consultancy roles, James achieved significant operational success in the pharmaceutical industry in a variety of senior management and marketing positions. He has an Honours Degree in Chemistry with Management Science from King’s College London, and holds a Chartered Institute of Marketing Diploma.
James Thomas
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